Monday, May 30, 2016

EUA Dec16: ENVI report and OPEC meeting might impact the price this week

Despite the delay of the report of the ENVI rapporteur Duncan about the post-2020 reforms of the EU ETS and many traders being at the Carbon Expo, the EUA Dec16 remained stable last week.

The EUA Dec16 opened at 5.95 euro, 2 cents below the settlement price of the Friday before. It was not able to climb any higher during the day. The depreciation accelerated in the last 30 minutes of trading. By the end of the day the benchmark carbon contract lost almost 4% and closed deep below the 30DMA (first time in 11 days). 

After a sleepy start the EUA Dec16 climbed to 5.79 euro on Tuesday, but fell quickly to 5.70 euro. The price showed a strong correlation with German front year power in the morning, but reversed direction and followed the rally in Brent after the publication of US housing data. 

The benchmark carbon contract had a positive start to the day on Wednesday, but the cancelled Polish auction pushed the price down to the Tuesday low of 5.70 euro. The shock didn’t last long and the price recovered very quickly to reach an intra-day high at 5.92 euro (just 2 cents below the 3DMA) and to close 1.4% higher at 5.87 euro.

Global positive mood helped the EUA Dec16 in climbing to 6.15 euro on Thursday, a level not seen since 17 May. The price got boosted by Brent that hit 50 USD per barrel in the morning. By the end of the day the price climbed back above the 30DMA again.

The first opportunity to react on the further delay of the rapporteur’s report was on Friday. 
Disappointed traders pushed the EUA Dec16 to 5.91 euro in the first half of trading. The contract recovered, however, in the afternoon and closed at 6.04 euro. 

The technical picture didn’t change significantly from last week. The price is still consolidating near the 6 euro level, apparently waiting for the rapporteur’s report.

The sideways movement since the end of April tightened the Bollinger bands and pushed the 20DMA below the 30DMA on Friday, which is a bearish signal. In addition, the MACD got close to the zero line as well, but is still consolidating at the moment. The RSI is at 55, in neutral territory. 

There are three main events this week that might put an end to the consolidation:

  1. The report of the rapporteur of the post-2020 reforms of the EU ETS is expected to be published this week. Depending on the content (ambition) the report might increase the price volatility of the EUA Dec16.
  2. The Organisation of the Petroleum Exporting Countries (OPEC) has a meeting on Thursday. As from time to time the correlation between Brent and carbon is getting stronger, any major decision made at this meeting can move not only the oil price, but also that of carbon.
  3. The European Central Bank has its monthly meeting on Thursday too. As we have seen in the past, comment of the ECB President Mario Draghi might impact the EUR/USD and (mainly through the dark spread) the price of EUA.

For the time being, we keep our neutral view on the EUA Dec16, emphasising the risk of higher volatility depending on the content of the rapporteur’s report about the post-2020 reforms and the OPEC meeting on 2 June (Thursday).

We see the first strong support at 5.70 euro (last week low) / 5.65 euro (May low). To the upside, the Bollinger band at 6.19 euro might be the first resistance, followed by the local high at 6.23 euro and a Fibonacci retracement at 6.53 euro.

Source: Bloomberg L.P.

Monday, May 23, 2016

EUA Dec16 stable before the publication of the report of the rapporteur

The EUA price strengthened on Monday as jumping oil prices lifted the power prices. The Dec16 contract closed at 6.11 euro, up 0.26 euro from last Friday. The technical picture got brighter as the price increased above the 20 and 100DMAs and the 6 euro psychological level.

Helped by a positive global mood, the price jumped to 6.18 euro in Tuesday’s opening but a Fibonacci level there stopped the rally and pushed the price back towards the 20DMA. A weak auction pushed then the price further down below the 20DMA and the 6 euro level, but higher German power helped the EUA in climbing back above 6 euro by the end of the day.

The EUA Dec16 started Wednesday on a downward slope in tandem with the price of German front year power, gas prices and Brent. It hit an intra-day low at 5.88 euro before noon. The 30DMA at 5.86 euro worked as a support. The price didn’t tremble from the delay of the ENVI report either. The closing brought a new intra-day high to Brent and to the EUA Dec16 (at 6.10 euro).

With Brent 2% lower in the morning, the EUA Dec16 started Thursday with sharp losses and fell below the 30DMA (at 5.91 euro) to an intra-day low at 5.85 euro. The late recovery in oil prices helped the EUA climbing back higher and the benchmark contract closed at 6.00 euro. The price movements during the day resulted in a dragonfly doji candlestick which is generally a bullish signal.

The benchmark carbon contract moved in a narrow range of 11 cents between 5.95 and 6.06 euro on Friday. The range corresponded roughly to the 20 and 30DMAs. The dragonfly doji proved a wrong signal as the price fell 3 cents from Thursday's settlement price and closed below 6 euro. 

The price is consolidating near the 6 euro level before the publication of the ENVI report about the post-2020 reforms by the rapporteur Ian Duncan. It will be interesting to see how market will react on the report if it is published in the second half of the week when many market participants will be travelling to the Carbon Expo in Cologne.

The auction supply will remain relatively stable from last week (13.8 million EUAs to be offered).

The RSI is in the neutral territory (52). The 5.80-6.20 euro range might keep the price before the ENVI report is published.

Source: Bloomberg L.P.

Monday, May 9, 2016

EUA Dec16: Bearish MACD makes us looking for support levels

Thanks to falling German power and Brent prices the EUA Dec16 lost more than 5% last week.

Despite opening 7 cents above last Friday’s settlement price and hitting an intra-day high at 6.28 euro, the EUA Dec16 depreciated continuously on Monday. It fell below the 100DMA at 6.07 euro and hit an intra-day low at 6.02 euro. By the end of the day, however, the price climbed back above the 100DMA and closed at 6.11 euro. The end of the compliance period and the UK holiday dampened the demand for allowances.

The EUA Dec16 contract continued its downward correction on Tuesday, closing the session at 5.99 euro, some 0.12 euro lower than the previous close and closing below the 100-day moving average.

On Wednesday, the EUA Dec16 opened at Tuesday’s closing price exactly and fell to an intra-day low at 5.91 euro not much later. The strong UK auction and the higher German power price, however, lifted the carbon above 6 euro again. The price hit an intra-day high at 6.29 euro and closed just 9 cents below this level.

The EUA Dec16 opened 4 cents above Wednesday’s settlement price and hit the Marabozu line at 6.58 euro on a stronger energy complex, before falling back to 6.20 euro on Thursday. The fall pushed the MACD below the signal curve, which is a bearish signal. The candle by the end of the day also showed the lack of strength. Volume was surprisingly high, although many market participants were on holiday.

Lower Brent price pushed the EUA Dec16 3 cents below Thursday’s settlement price in Friday’s opening. The carbon price fell hand in hand with the front year German power in the afternoon to hit an intra-day low at 5.84 euro. The price closed at 5.86 euro and below the increasing trend channel of April.

The technical picture became rather bearish last week with the MACD crossing the signal curve, the price falling from the trend channel and a close below 6 euro. Fundamentals with an auction supply of 14 million, and a weak energy complex might also weigh on the price. The first support is the 30DMA at 5.66 euro. (5.67 euro used to be a resistance in April and might have changed its role.) The next support might be a Fibonacci level at 5.56 euro, followed by another at 5.20 euro and the 5.00 euro level.

Should, however, the dark spread remain appealing, it might limit the losses of the price. In a positive scenario, the price has to beat the 20 and 100DMAs first, at 5.91 euro and 5.96 euro, respectively. The next resistance is a Fibonacci level at 6.13 euro, followed by last week's high at 6.55 euro (strengthened by a Fibonacci level at 6.49 euro).

Source: Bloomberg L.P.

Monday, May 2, 2016

EUA Dec16: Correction after touching 7 euro

Despite some initial hesitation due to the energy mix in red, the EUA Dec16 climbed higher to hit a new 3-month high at 6.09 euro on Monday. It was not able, however, to keep its gains by the end of the day and lost 7 cents (-1.1% d/d).

On Tuesday, the EUA Dec16 opened at 5.92 euro, 2 cents above Monday’s settlement price. After slipping to an intra-day low at 5.87 euro, it started to rally and didn’t stop until 6.71 euro, the highest level since 20 January. The price broke above the trend channel and the RSI increased above 70.

Buyers seemed unstoppable in the carbon market on Wednesday again. The EUA Dec16 opened 4 cents above Tuesday’s settlement price and three hours after the market opened the price was already 40 cents higher, above 7 euro. The rally above 6.67 euro (a former resistance) was especially spectacular as the ask side of the book was almost empty. The price slipped then below 7 euro in the afternoon, but gained more than 3% in a daily comparison.

The EUA Dec16 contract gave back big part of the gains of Tuesday and Wednesday during Thursday’s trading. The price opened at 6.83 euro, touched an intra-day high at 6.90 euro, but then it declined until the end of the day and closed at 6.34 euro, down 0.50 euro (-6.9%) from Wednesday’s settlement price.

The candles from Wednesday and Thursday formed a bearish engulfing which might have convinced some traders to sell the EUA, so the price fell to 6.13 euro on Friday. There might have been traders taking profit from the April rally and also closing long positions before the long weekend.

After the recent rally, the price might take a break and consolidate near the current levels next week. The lower auction supply might support the price as there will be only three auctions this week due to public holidays. The weekly auction volume will decline by some 40% to 10.4 million from 17 million the week before.

In a positive scenario, the first resistances are two Marubozu lines at 6.29 and at 6.58 euro, followed by the April high at 7.07 euro and the 200DMA at 7.21 euro.

Should a correction start in German power or the shadow rapporteurs chose the less ambitious options from Mr. Duncan’s skeleton paper on Friday, the price might fall below the 100DMA at 6.07 euro and in worst case to the 20DMA at 5.73 euro.

Source: Bloomberg L.P.